Newsletters
Lack of good news
June 30, 2015

Untitled Document

Last week I was talking to a good friend who noticed that I’ve not written in a while and he was asking if I had given up on it. I explained that the amount of bad things happening in the world made me feel like I have a hangover thus incapable of working properly, let alone writing. Also, things are changing so quickly that, in a matter of minutes, a newsletter can already be old. This one will probably be old by the time you read it.

Take Brazil, for instance: every day or every couple of days a new arrest, is made, a new “scam” comes to light. A good example is this very weekend, where new information appeared with details about who received what. The Brazilian economy is in bad shape and although the storm seems to be over, I however, think that the worst is yet to come. Take the labor market for instance, or the interest rate. Due to the extreme complex and unfriendly labor legislation in Brazil, Brazilian businessmen are “labor hoarders”. What do I mean by that? It is so difficult to fire an employee that companies don’t make adjustments when the first signs of slow down arrives. They wait until the last minute to fire people, the minute they don’t have a choice anymore. Well, that moment has arrived so my guess is that, we are just in the beginning of the painful road of more unemployment. To be sure, if there is a consistent indicator going up in Brazil that is the unemployment rate which came from 4.3% in January, to 5.9% in March and reached 6.4% in May. That road will bring along social unrest, more violence, more insolvencies, less consumption, and ultimately less investment. Same with interest rate: for the first time since 2009, with the new SELIC at 13.75%, the CDI are yielding 1% per month before taxes. So, what incentive one has to invest in any other asset- being that the stock market, real estate, production - if, without doing anything and very low risk you have that kind of return. Granted, with an inflation at 8% the real interest rate is smaller, but who cares when you don’t have anywhere else to go? As we learned in the past, the increase on interest rate is good for investors and bad for the government as it impacts the public debt and so far has not had a significant influence on inflation. With corruption, inflation, recession as themes, recurrent themes, what else is there to say?

It is under that black cloud of bad news and new accusations that president Dilma arrives in the US to sell Brazil. Who is buying? Not even soccer is bringing good news to the country anymore.

In the old continent, let’s take a look at Greece: this is a drama that is going on for 6 years and the question remains: what will possibly be the end game there? If they fold, it will bring more social unrest, more pain to the population, more hard times. If they don’t, credit will disappear and there will be pain also. Greece has being through 6 years of recession, from 2008-2013, unemployment has risen and finally has stabilized at 29%. That means a third of their population don’t find a job. Now the prime minister decided to hear what the Greeks have to say about a potential deal with creditors, which as honorable as it may seem at first look, shows that he doesn’t have the guts to make a decision. He might have to make that decision anyway, because the troika didn’t “approved” the referendum. So, will the Prime minister capitulate and abandon his electoral mandate or will he lead Greece out of the Eurozone? Whatever happens this week, a couple of things are certain and the first is that there will be more pain and more hard times for the Greek people in any path chosen; also, it will probably cause a hiccup in the markets but not a crisis; stocks will go down for a day, maybe two, maybe a week and countries like Spain, Italy, Portugal will suffer the most. With time, buyers will return to the market, life will go on and good stocks will go up again.

Ignoring Puerto Rico, the US is the only place where good things are happening, but I have been saying that since 2009 so I feel like a broken record. In fact the US has been a bright spot of stability and growth- although small- in a world of recession and unemployment. On top of the vibrant economy we had two great news this week, presented by the Supreme Court: the legalization of gay marriage in all states and the (positive) outcome of yet another health care challenge. I had family visiting and they were amazed by the construction sites: it is construction everywhere, not only NY, it is in Philadelphia, it is in Miami, is on the west coast. Wherever you go somebody is building something, a new position is being created, a young man or woman coming out from college is being hired. Just in my block (and I don’t live in a “cool” place, I live in the boring Upper East Side) a demolition is about to start and I will say good bye to my local Budget rental and a lot of residents will lose their garage as a new skyscraper will replace the old parking lot. In the block opposite to mine another building is being built. Walking towards north on 3rd avenue more sites are being developed. Interesting enough, everybody knows, or should know, that construction is a cycle and it really goes up and down. The story goes more or less like this: there is a shortage of inventory, prices goes up, new buildings are built, than the new units hit the market, then prices stabilize or fall, and then construction declines or stop. In New York in 2015, 6500 new units will hit the market, twice as many as in 2014, the most since 2007. There is no signs of overheating yet, we are still on the ascending part of the cycle. Now, let’s see what is going on with the stock market: it has been a bad year and after 5 years of strong gains the S&P is trading in a range and depending on the day you pick to calculate year to date performance it could be negative or slightly ( very slightly ) positive. Same for the Dow Jones. The NASDAQ is the only one showing positive performance.

If you ready attentively you might be confused and might wondering if I am optimistic or pessimistic. I am very pessimistic with Brazil and Greece, I am skeptical about Europe and China and I am cautious in regards to the USA: there is economic growth in the USA but I think real estate and bonds are illiquid overvalued assets and stocks are just pricey. Enjoy the ride while it lasts.

November 23, 2015
Much ado about nothing
October 27, 2015
Brazil, we can only pray (or hope)
August 18, 2015
Looking back, looking forward
April 14, 2015
What if...
February 24, 2015
What to expect in 2015
November 17, 2014
The American conundrum or just plain stupidity?
October 27, 2014
What is next?
September 09, 2014
Lessons we should have learned
August 12, 2014
US and Brazil: 2014, what to expect next
June 26, 2014
Headwinds ahead but still optimistic
April 26, 2014
Roller Coaster
March 14, 2014
Brazil in perspective
February 07, 2014
Stay the course. Change the course.
January 17, 2014
Diversification. Or not.
November 25, 2013
Who buys a US$ 500 pillow?
October 02, 2013
Disturbing
September 03, 2013
What a mess...
July 31, 2013
Of Protests and Stocks
June 19, 2013
Betting in the future
April 30, 2013
Nowhere else to go
March 26, 2013
Cyprus: not enough to stop the US market
February 25, 2013
The Sequester
January 23, 2013
2013: what is ahead for investments
December 07, 2012
Brazil: uncertainty and mixed signals
November 05, 2012
It is not about the economy!
September 20, 2012
The Country is better off
July 05, 2012
The New Normal
May 30, 2012
Half empty, half full
April 30, 2012
How to restore prosperity
April 21, 2012
Brazil became poorer
February 27, 2012
Romney, Obama and the American Imbroglio
January 25, 2012
On storms and calmness, waiting for next round
December 22, 2011
Happy Holidays!
November 23, 2011
Impasse and Paralysis
October 24, 2011
The rally has legs. Or not
September 23, 2011
Preparing for the crisis
August 24, 2011
Kicking the can down the road: is there an end in sight?
July 24, 2011
Can the politicians be rational?
June 24, 2011
Global Economy: where are the world leaders bringing us?